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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 1996
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-9734
ONEITA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0351045
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4130 Faber Place Drive, Suite 200 29405
Ashley Corporate Center (Zip Code)
Charleston, SC
Registrant's telephone number including area code: (803) 529-5225
Securities registered pursuant to Section 12(b) of the act:
Title of Class Name of Each Exchange on which registered
Common Stock, $.25 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such report)
and (2) has been subject to such filing requirements for the past 90
days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this form 10-K: _
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant, as of November 29, 1996 was
approximately $18,040,118.
The number of shares outstanding of each of the Registrant's
classes of Common Stock, as of November 29, 1996 was 9,149,339 shares.
Documents incorporated by reference: Part III - Registrant's
definitive proxy statement to be filed pursuant to Regulation 14-A of
the Securities Exchange Act of 1934.
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PART I
ITEM ONE - BUSINESS (Dollars in thousands)
Oneita Industries, Inc. (the "Company" or "Oneita") manufactures and
markets high quality activewear and infantswear. Oneita's activewear includes
T-shirts and sweatshirts for screen printing sold under the Oneita Power-T(R),
Oneita Power 50 Plus(R), Oneita Power-Sweats(R) and Oneita Colorwear(TM) brand
names. The Company estimates that it is the fourth largest manufacturer of
branded imprinted T-shirts in the United States. Oneita's infantswear includes
layette and playwear sold under brand names, including Soupcon(R), Oneita's
Kids(R), Health-tex(R) Layette Collection and under private label. Activewear
products are marketed to the imprinted sportswear industry and to retailers and
infantswear products are marketed to major retailers.
Since 1987, Oneita has achieved growth by building a brand name activewear
and infantswear business with a high quality image. As a result of realigning
its product mix to concentrate on these products, the Company's net sales of
activewear increased from $37,400 in 1987 to $142,300 and $134,900 in 1995 and
1996, respectively, and net sales of infantswear increased from $14,200 in 1987
to $32,700 and $33,400 in 1995 and 1996, respectively.
Oneita expanded its activewear products by introducing sweatshirts in 1991
under the Oneita Power-Sweats label. Sweatshirts accounted for approximately
$17,700 and $16,900 of the activewear sales in 1995 and 1996, respectively. In
infantswear, Oneita has focused on developing a variety of brand name products,
each targeted at specific retail markets, including department stores, chain
stores and mass merchandisers.
PRODUCTS
Oneita manufactures and markets T-shirts and sweatshirts (activewear) for
the imprinted sportswear (screenprint) industry. Screen printing consists of
imprinting designs, patterns or letters ranging from simple lettering to complex
color patterns on apparel. Oneita's T-shirts, in management's opinion, are of
high quality because they are heavy in weight, have full cut specifications and
possess long-lasting construction features such as shoulder-to-shoulder taping
and a seamless tubular collar design.
Oneita introduced sweatshirts in 1991 to its activewear line under the
Oneita Power-Sweats label. The Company sells sweatshirts to the same customers
to whom it sells T-shirts and believes that its ability to do so may result in
stronger relationships with such customers and the addition of new customers for
both T-shirts and sweatshirts.
Historically, Oneita's business has been seasonal with respect to T-shirt
sales to the extent that approximately 50% of annual T-shirt sales have been in
the March through July period. Sweatshirts provide a seasonal balance for Oneita
since its customers tend to stock higher levels of T-shirts in the spring and
summer months and higher levels of sweatshirts in the fall and winter months.
The Company sells activewear through in-house salespersons to approximately
300 customers located throughout the United States, including 60 distributors.
The Company also sells activewear to distributors in Europe, Canada and the
Pacific Rim. Such export sales accounted for approximately $2,000 of net sales
in both 1995 and 1996. The Company intends to expand its markets and geographic
distribution by, among other things, increasing export sales to these regions.
The Company estimates that the branded imprinted T-shirt market exceeds
$1.6 billion in sales annually and believes it is the fourth largest
manufacturer of branded imprinted T-shirts in the United States. The market for
T-shirts for the screen printing industry is very competitive and is based upon
quality, service, price, availability of product and name recognition. Oneita's
primary competitors, Fruit of the Loom, Inc., Russell Corporation and Hanes (a
subsidiary of Sara Lee Corporation) are larger, have substantially greater
resources and in the aggregate account for a majority of the T-shirt market.
Oneita believes that it competes favorably in quality, price, customer
service and availability of product and that foreign competition does not have a
material effect on the sale of activewear within the U. S. market. In the fourth
quarter of fiscal 1995, customer demand declined significantly and the Company
offered certain promotional pricing arrangements for fourth quarter sales. In
1996, in order to reduce high inventory levels and in response to competitive
market conditions, the Company further reduced its selling prices. In fiscal
year 1996, average selling prices were approximately 15% lower than fiscal 1995.
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During 1994, Oneita expanded its Power 50 Plus line (a premium T-shirt
comprised of 60% cotton and 40% polyester), enhanced its "PFD" T-shirt
collection (an all-cotton shirt that is re-dyed by customers) and also
introduced a new T-shirt, the Power Rib-T. In 1995, the PFD program was further
expanded by the offering of the Colorwear Collection, a garment dyed assortment
of both old and new styles in new colors.
Historically, Oneita has manufactured and sold private label cotton and
cotton blend layette and playwear for infants and toddlers. Layette is apparel
for newborns while playwear is apparel for infants and toddlers up
to 36 months of age. In 1986, Oneita began to manufacture and market higher
priced infantswear under its own brand name, Soupcon. In 1988, Oneita introduced
toddlerswear. In fiscal 1995 and 1996, net sales of infantswear and toddlerswear
under the Company's own brand names accounted for approximately 38% of its total
infantswear sales.
Oneita has an exclusive license agreement with Health-tex, Inc. to
manufacture and market the Health-tex lines of layette products in the United
States and its territories. This license agreement has been renewed through
September 1997 with three three-year extension options. Oneita also has a
license agreement with Kessler Marketing Group, Inc. to manufacture and market a
layette line under the Mother Goose & Company trademark. This license agreement
expires on March 30, 1997, subject to two three-year renewal options, and
requires certain minimum royalty payments. Sales of products under these license
agreements declined in 1996, and accordingly, the agreements may not be renewed
in 1997.
Oneita sells its private label infantswear and its licensed products to
substantially all of the major department store chains and its Soupcon products
to higher priced department and specialty stores. ONEITA'S KIDS products are
sold primarily to chain stores and moderately priced retailers. In 1995, the
ONEITA'S KIDS line was expanded with new styles of fleecewear and T-shirts and
marketed to the imprinted sportswear industry.
Oneita has redirected its infantswear sales efforts by de-emphasizing small
orders and higher priced playwear and concentrating on sales of layette and
basic infantswear to larger customers, including mass merchandisers. The Company
markets infantswear primarily through in-house salespeople. Oneita also displays
its products at infantswear trade shows and advertises in trade magazines to
maintain and improve brand name recognition.
The infantswear market is highly competitive and consists of companies,
including William H. Carter, Gerber Products Company and Oshkosh B' Gosh, Inc.
which are larger and have substantially greater market share and resources than
the Company. The Company believes that it competes favorably with other
manufacturers of private label products as well as with other manufacturers of
high quality brand name infantswear on the basis of quality, service, price and
availability of product.
MANUFACTURING
The Company's historical strategy has been to increase cost efficiencies
through operating its facilities at maximum capacity and, from time to time,
using outside contractors to meet increased customer demand. In addition, the
Company has an on-going program to modernize its manufacturing facilities
through the addition of technologically advanced equipment. Since 1991, the
Company has added approximately $68,000 of technologically advanced machinery
and equipment. These expenditures are intended to increase production capacity
and manufacturing efficiencies. Operations at the Company's new Fayette, Alabama
Textile facility commenced in October 1995 and production at this facility
currently is at approximately 80% of capacity.
The Company's manufacturing operations consist of knitting, bleaching and
dyeing, cutting and sewing, and packaging. The Company's operations begin with
raw yarns. The yarn is knitted into four basic fabric constructions (jersey,
fleece, rib and interlock) from which the Company produces its products. The
knitted fabric is batched in lots for bleaching or scoured and dyed in a variety
of both pressure and atmospheric vessels for color, consistency and quality.
Next, the finishing operation sets the width and length and pre-shrinks the
fabric. The finished fabric lots are then transported to a cutting operation
which cuts specific garment parts such as sleeves, collars, cuffs and bodies for
sewing. The cut parts are sewn together in an assembly line. Various sewing
threads, stitches, trims and colors are mixed and matched for desired styling.
The finished garments are inspected, folded and packaged. Quality assurance
systems are utilized throughout the manufacturing process to check raw
materials, in-process inventories and finished products.
During fiscal 1996, the Company closed two manufacturing plants located in
South Carolina and reduced its administrative and supervisory staff by 150 as
part of a restructuring plan to streamline and consolidate the Company's
manufacturing and administrative operations. The Company's eight remaining
manufacturing
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facilities are located in South Carolina, North Carolina, Alabama, Jamaica and
Mexico. In fiscal 1996, approximately 60% of the Company's T-shirts were sewn in
facilities located in Jamaica and Mexico. In December 1994, the Company
consolidated its five activewear warehouse locations in South Carolina to one
warehouse near Atlanta, Georgia. The consolidation, as well as new state of the
art material handling equipment, has reduced transportation costs and lead
times.
SALES TO MAJOR CUSTOMERS
Net sales to the Company's ten largest customers for the year ended
September 28, 1996 accounted for approximately 47% of the Company's total sales
for such period. One customer, SanMar Corporation, a distributor of activewear
for screen printing, accounted for approximately 16% of total net sales in
fiscal 1996. Net sales to the Company's five largest activewear customers in
fiscal 1996 accounted for approximately 32% of the Company's total net sales.
Net sales to the Company's five largest infantswear customers for 1996 accounted
for approximately 13% of the Company's total net sales.
EFFECT OF IMPORTS
Current United States quotas and tariffs restrict the quantity and increase
the cost of apparel items which foreign producers can export to the United
States. Foreign competitors, whose chief competitive advantage are lower labor
costs, tend to focus on items with high labor content, such as higher priced
sportswear. Oneita's products are not as labor intensive as other manufactured
apparel and, therefore, the Company believes its products are less sensitive to
foreign competition.
In November 1993, the United States Congress approved the North American
Free Trade Agreement ("NAFTA"), which is intended to eliminate barriers to trade
among the United States, Canada and Mexico over a ten year period. In December
1993, the Uruguay round of negotiations under the auspices of the General
Agreement on Tariffs and Trade("GATT") was concluded. GATT will require that
quotas on apparel and textile products be phased out over a ten year period and
tariffs on such products be reduced by approximately 11% over the same ten year
period. The Company is unable to determine at this time what effect, if any,
changes resulting from NAFTA and GATT may have on its business, operations or
financial condition.
RAW MATERIALS
The principal raw materials used in the Company's products are cotton and
cotton-blend yarns. These yarns are readily available from numerous domestic and
foreign suppliers. Market prices of cotton and cotton-blend yarns fluctuate from
time to time. In previous years, the Company has purchased quantities of these
yarns under supply contracts generally at fixed prices with various expiration
dates. At September 28, 1996, the Company was not a party to any supply
contracts for these cotton yarns; instead purchasing its current requirements
within the spot market at more favorable prices. The Company may enter into yarn
contracts in 1997 depending on anticipated market prices. For the year ended
September 28, 1996 the Company purchased approximately 90% of its yarn from
Avondale Mills, Inc., the owner of 24.8% of the Company's Common Stock.
Other raw materials, such as chemicals, dyes and packaging materials, are
purchased on the open market. The sources and availability of these materials
are believed to be adequate to meet present needs.
BACKLOG
The Company's backlog of unfilled orders was approximately $17,000 at
September 28, 1996, compared with approximately $36,000 at September 30, 1995.
The amount of unfilled orders at a particular time is affected by a number of
factors. Accordingly, the amount of unfilled orders may not be indicative of
eventual shipments. The Company expects to ship substantially all of its
September 28, 1996 backlog of unfilled orders by September 30, 1997.
TRADEMARKS AND LICENSES
The Company has registered the Oneita Power-T(R), Oneita Power 50 Plus(R),
Soupcon(R), ONEITA'S KIDS(R) and Oneita Power-Sweats(R) trademarks and certain
other trademarks. The expiration dates of these trademarks
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range from July 2006 to December 2008. The loss of certain of these trademarks
would have a material adverse effect upon the Company's business.
EMPLOYEES
At September 28, 1996, the Company had approximately 2,900 full time
employees. Approximately 200 of the Company's manufacturing employees are
covered by a collective bargaining agreement with the Union of Needletraders,
Industrial and Textile Employees, successor to the Amalgamated Clothing and
Textile Workers Union. The agreement expires in October 1998.
The Company considers its employee relations to be satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
At September 28, 1996, the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
Served as
Officer
Name Age Since Positions and Offices
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert M. Gintel 68 1993 Chairman of the Board
C. Michael Billingsley 45 1996 President and Chief Executive Officer
William H. Boyd 49 1986 Vice President - Administration and Treasurer
E. Franklin Impson, Jr. 38 1994 Vice President and Controller
Edward I. Kramer 62 1986 Secretary
</TABLE>
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ITEM TWO - PROPERTIES (Dollars in thousands)
As of September 28, 1996, the Company occupied approximately 1,306,000
square feet of manufacturing, general office and warehouse space at its
facilities in Alabama, Georgia, New York, North Carolina, South Carolina,
Jamaica and Mexico. Approximately 637,000 square feet are under real estate
leases with aggregate minimum annual rental commitments of approximately $1,992.
Set forth below is a summary of the facilities owned or leased by the Company.
<TABLE>
<CAPTION>
Location Primary Use Square Feet
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charleston, SC Executive Offices 27,000 (a)
Andrews, SC Manufacturing 272,000
Atlanta, GA Distribution 412,000 (b)
Cullman, AL Manufacturing/Distribution 177,000
Fayette, AL (2 locations) Manufacturing 220,000
Kinston, NC Manufacturing 114,000 (c)
Juarez, Mexico Manufacturing 28,000 (d)
Montego Bay, Jamaica (2 locations) Manufacturing 49,000 (e)
New York, NY Sales and Marketing 7,000 (f)
</TABLE>
- ----------------
(a) Premises are leased through September 1, 1999 at an annual rental of $377
per year. The Company has an option to renew for two additional five (5)
year periods.
(b) Premises are leased through November 1999 at an annual rental of $912 per
year. The Company has an option to extend the lease for an additional
five years.
(c) Premises are leased through April 30, 1998 at an annual rental of $285
per year. The Company has an option to purchase the premises for $2,500,
exercisable at any time prior to expiration of the lease.
(d) Premises are leased through October 1, 1999 at an annual rental of $126.
The Company has an option to purchase the premises for $900, or it may
renew the lease at the end of the lease term.
(e) Premises are leased through November 30, 1997 and June 30, 2000 at annual
rentals of $25 and $96, respectively.
(f) Premises are leased through April, 2000 at an annual rental of $171.
- ----------------
The Company believes that its facilities and equipment are well
maintained and are sufficient to meet current production levels and that its
facilities are sufficient to meet anticipated sales and growth through 1998.
ITEM THREE - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM FOUR - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
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PART II
ITEM FIVE - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed for trading on the New York Stock
Exchange under the symbol "ONA". As of November 30, 1996, there were
approximately 200 holders of record of the Company's Common Stock. The following
table shows for the periods indicated the quarterly range in the high and low
sales prices for these securities.
<TABLE>
<CAPTION>
1996 1995
----------------- -------------------
High Low High Low
Fiscal Period :
<S> <C> <C> <C> <C>
First Quarter ......................... $8 1/4 $6 1/8 $11 7/8 $ 9 3/8
Second Quarter ......................... 7 1/4 4 3/8 12 3/4 10 5/8
Third Quarter ......................... 5 3 1/8 12 1/8 8 7/8
Fourth Quarter ....................... 4 1/8 2 5/8 10 5/8 8 1/8
</TABLE>
No cash dividends have been paid since the Company's initial public offering.
See Note 3 to "Notes to Consolidated Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
ITEM SIX - SELECTED FINANCIAL DATA (In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations :
Net sales........................... $ 168,346 $ 175,036 $ 193,459 $ 177,610 $ 203,517
Cost of goods sold.................. 192,094 146,820 166,051 152,776 168,512
Interest expense net................ 7,001 3,006 3,868 4,388 4,179
(Loss) income before income taxes- (56,632) 4,372 (6,794) (4,609) 13,174
Income taxes........................ (2,939) 1,552 27 (1,632) 5,348
Net (loss) income................... (53,693) 2,820 (6,821) (2,977) 7,826
Financial data:
Inventories......................... $ 43,883 $ 79,968 $ 44,720 $ 63,086 $ 60,078
Accounts receivable................. 25,675 29,438 35,757 28,718 39,957
Depreciation, amortization and
goodwill write-off (see note below) 5,886 4,649 11,443 4,266 4,150
Working capital..................... (13,582) 72,904 60,885 84,361 69,623
Long-term debt and
capital lease obligations......... 3,125 37,404 17,133 47,228 27,338
Shareholders' equity................ 37,743 77,840 76,022 82,822 85,016
Total assets........................ 129,525 165,017 120,917 149,266 148,818
Common Stock data:
Net (loss) income per share......... $ (7.58) $ .40 $ (.98) $ (.43) $ 1.24
Book value per share................ $ 3.49 $ 11.32 $ 10.92 $ 11.09 $ 13.06
Number of common
shares outstanding............ 9,149 6,879 6,961 6,957 6,508
</TABLE>
Net loss for fiscal 1996, 1994 and 1993 includes after-tax amounts of $6,229,
$2,519 and $4,700, respectively, for restructuring charges as described in Note
5 to the Company's financial statements for the fiscal year ended September 28,
1996. Net loss for fiscal 1994 also includes a $6,651 write-off of goodwill. See
Note 1 to the Company's financial statements for the fiscal year ended September
28, 1996.
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ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands, except per share amounts)
RESULTS OF OPERATIONS
1996 Compared 1995
Net sales of the Company were $168,300 as compared to $175,000 in the
prior year, a decrease of $6,700 or 3.8% due primarily to reduced selling
prices.
Net sales of activewear were $134,900 as compared to $142,300 in the prior
year, a decrease of $7,400 or 5.2%. The decrease was principally due to $19,500
of reduced revenues attributable to decreased prices of T-shirts and fleece and
promotional pricing offset by an increase in unit sales of $14,594. Net sales
to infantswear customers were $33,400 compared to $32,700 last year.
Gross profit for 1996 decreased $52,000 from the prior year
due to charges of approximately $11,300 to write down certain inventories to
their net realizable value, as well as reduced revenues of $26,000 attributable
to decreased prices and promotional pricing resulting from the Company's efforts
to reduce inventory levels, and generally lower selling prices within the
marketplace. Additionally, unfavorable absorption of fixed costs aggregating
approximately $14,600 was incurred due to lower units produced. Gross profit, as
a percentage of net sales, decreased to (14.1%) compared to 16.1% in the prior
year. Market pressures that resulted in reduced sales volumes and prices and
operating losses during the year ended September 28, 1996 are continuing in
fiscal 1997. In 1997, cost of goods sold is expected to be reduced due to the
discontinued use of contractors, who in 1995 and 1996 produced most of the
Company's specialty products.
Selling, general and administrative expenses for 1996 decreased $1,100 or
5.3% from 1995. Selling, general and administrative expense, as a percent of
net sales, is expected to decrease in future periods due to the staffing
reductions mentioned below.
Interest expense, net of interest income, was $7,000 compared to $3,000
for last year. The increase was due to higher average borrowings as well as
higher interest rates.
Net loss for fiscal year 1996 was $53,700 compared to a net income of
$2,800 for fiscal year 1995. Included in the net loss for 1996 were
restructuring costs totaling $6,229 related to the shutdown of two facilities
located in South Carolina and reductions in administrative and supervisory
staffing. In 1996 the Company reduced its administrative and supervisory staff
by approximately 150 persons which is expected to yield an estimated annual
savings of approximately $10,000.
1995 Compared to 1994
Net sales of the Company in 1995 were $175,000 as compared to $193,500 in
1994, a decrease of $18,500 or 9.6 %. The decrease was due to a reduction in
unit sales of $20,000 , partially offset by $8,000 of net price increases over
the prior year. During the first nine months of 1995, the Company, following
other industry leaders and reflecting firm customer demand, increased prices
over the prior year an average of 6.5%. However, in the fourth quarter of 1995
customer demand declined significantly and the Company offered certain
promotional pricing arrangements dropping the overall average price increase for
1995 to 4%. These pricing arrangements reduced fourth quarter gross profit by
$3,600. In September 1995, the Company announced price reductions averaging 9%
on most of its white and light colored T-shirts effective October 1, 1995.
Net sales of activewear were $142,300 in 1995 as compared to $157,100 in
1994, a decrease of $14,800 or 9.4%. Net sales of T-shirts decreased by $14,800
in 1995 compared to 1994 principally due to lower unit sales of T-shirts of
$14,000 offset by $8,000 in increased selling prices. Net sales of sweatshirts
in 1995 were approximately the same as 1994.
Net sales of infantswear were $32,700 in 1995 as compared to $36,400 in
1994, a decrease of $3,700 or 10.2%. The decrease was due to lower unit sales.
Gross profit for 1995 was $28,200, an increase of $800 or 2.9% over 1994.
The increase was attributable principally to higher selling prices offset by
decreased unit sales. Gross profit as a percentage of net sales
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increased to 16.1% for 1995 compared to 14.2% for 1994. Such increase was
principally attributable to the price increases mentioned above ( 4 %) and
overall reduced per unit operating costs (2.1%) offset by both increased raw
material prices ( 3.2 %) and unfavorable absorption of fixed costs in the fourth
fiscal quarter ( 1.0 %) due to reduced operating schedules.
Selling, general and administrative expenses for 1995 increased $1,200 or
6.1% over 1994 primarily due to increases in personnel and related costs ($800)
and product development costs ($400).
Interest expense, net of interest income for 1995 was $3,000 compared to
$3,900 for 1994. The reduction was due primarily to lower average borrowings.
Net income for fiscal year 1995 was $2,800 compared to a net loss of $6,800
for fiscal 1994. During 1994, the Company changed its accounting method for
evaluating the impairment of intangible assets from a recoverability through
future operations method to a fair value method. As a result of this change, the
Company wrote-off $6,651 of goodwill in 1994. The results for the year ended
September 30, 1994 also included a pretax charge of $4,080 for the write-down to
fair market value of certain facilities that the Company intended to sell or
abandon after usable machinery and equipment was redeployed, and the
transitional costs related to the reorganization of certain administrative
functions. The write-downs of these facilities were associated with the
Company's reorganization of its Infantswear Division and consolidation of
distribution and manufacturing facilities in order to improve productivity and
customer service, reduce transportation costs and cut lead times.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $(13,582) at September 28, 1996 compared to $72,904 at
September 30, 1995. This decrease was caused primarily by the reclassification
of $69,115 long-term debt as current liabilities due to the technical default
mentioned below and a $35,200 reduction in inventories.
Net cash used in operating activities for the years ended September 28,
1996 and September 30, 1995 were $5,600 and $23,800, respectively. The primary
component of cash used in operating activities in fiscal 1996 was the net loss
as adjusted for depreciation and amortization. In fiscal 1996 working capital
funds were provided from a net decrease in inventory of $36,085 and a decrease
in accounts receivable of $3,860. Inventories at September 30, 1995 of $80,000
were reduced by 45% in 1996 to $44,000. The Company believes that upon the
completion of its product realignment inventories can be maintained at lower
levels than in prior years. The primary component of cash used in operating
activities in fiscal 1995 was an increase in inventory of $35,248 offset by
net income plus depreciation and amortization (totaling $7,469) plus a $3,684
decrease in accounts receivable. During 1995, the Company's inventories
increased by $35,000 to $80,000. While $10,000 of the increase was planned due
to new styles and other customer service requirements, $25,000 of the increase
was due to reduced fiscal 1995 fourth quarter deliveries resulting from
reduced customer demand and was considered to be in excess of quantities
required to support current levels of customer demand. During fiscal 1996
inventories were reduced by 45%.
Cash used in investing activities in fiscal 1996 consisted of capital
expenditures of $9,184, primarily to expand the Company's new textile
manufacturing plant in Fayette, Alabama.
In January 1996, the Company issued 10% subordinated notes to Avondale
Mills, Inc. and Robert Gintel in the aggregate principal amount of$15,000
maturing February 26, 1999, concurrently with the funding of the Company's new
bank credit facility. In August 1996, the Avondale Note of $7,500, along with
accrued interest thereon, was converted into 2,270,833 shares of Common Stock of
the Company at a rate of $3.50 principal amount of notes per share of Common
Stock in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
remaining notes payable to Mr. Gintel are subordinated to the Company's bank
debt and certain other senior debt. The proceeds from issuance of the
subordinated notes have been used for working capital and capital expenditures.
During fiscal 1996, the Company determined not to proceed with a proposed rights
offering of Common Stock which had been intended to repay 75% of these
subordinated notes.
In January 1996, the Company entered into a new $60,000 revolving credit
agreement with its banks. At September 28, 1996, $57,000 was outstanding under
this agreement. The proceeds of the new debt were used to pay off an existing
bank credit facility and existing short-term bank lines totaling $50,000. The
additional proceeds were used for working capital and capital expenditures. The
new revolving line of credit is collateralized by inventories and account
receivables and has a maturity date of January 26, 1999. At September 28, 1996,
the Company was not in compliance with certain financial covenants arising under
the new revolving credit agreement and under a loan agreement with an
institutional lender and there existed a $29,000 collateral deficiency under the
agreements as related to borrowing capacity. The Company
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has entered into negotiations with its existing lenders and another lender
to restructure its debt agreements by modifying the financial covenant
requirements and extending the collateral to include the Company's property,
plant and equipment. Management expects that these efforts will result in the
restructuring of the Company's existing debt agreements or the replacement
thereof. However, no assurance can be given that the Company will be successful
in completing its negotiations to restructure or replace its existing debt
agreements on terms satisfactory to the Company.
The Company's future liquidity requirements are expected to consist
primarily of capital expenditures and seasonal working capital requirements. The
Company's liquidity requirements are expected to be financed from operating cash
flow and existing debt arrangements, as amended or refinanced. No assurance can
be given that sufficient financing will be available to the Company on
satisfactory terms or at all.
In the event that sufficient financing cannot be arranged in a timely
manner, the Company may be required to further reduce inventory levels in
advance of planned deliveries by either further curtailment of production or by
accelerating customer deliveries through the additional discounting of prices
below its inventory and production costs.
The Company has reduced its work in process and finished goods inventories
as well as its overall operating costs during fiscal 1996. In the past seven
months, annualized operating costs have been reduced by approximately $10,000
and inventory levels have been reduced from $79,968 a September 30, 1995 to
$43,900 at September 28, 1996. The Company intends to continue to focus on these
areas, as well as on improvements in sales and marketing, manufacturing and
quality control in fiscal 1997. The reduction in inventory and operating costs
is expected to generate sufficient liquidity to meet the Company's obligations;
however, no assurance can be given that will be the case.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its sales and profitability.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in the accompanying
Index to Financial Statements and Schedules are attached as part of this report.
ITEM NINE - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its Annual Meeting of
Stockholders scheduled to be held in February 1997, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended September 28, 1996. Information relating to the
executive officers of the Registrant appears under Item I of this report.
10
<PAGE> 11
PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) Financial Statements:
See Index to Consolidated Financial Statements and Schedules at page
F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Registrant in the last quarter of
the year covered by this report.
(c) Exhibits:
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3(a) of Form S-1 Registration Statement No. 33-16972)
3.2 By-laws as amended (incorporated by reference to Exhibit 3.1 of
Form 10-Q for the quarter ended March 31, 1994)
10.1 Stock Option Plan (incorporated by reference to Exhibit 10(a) of
Form S-1 Registration Statement No. 33-16972)
10.2 1989 Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 10.2 of Annual Report on Form 10-K for the year ended
September 30, 1990)
10.3 $60,000 Revolving Credit Agreement dated January 26, 1996 among
the Company, SunTrust Bank, Atlanta, First Union National Bank
of South Carolina and NatWest Bank N.A. (incorporated by
reference to Exhibit 10.28 of Form 10-Q for the quarter ended
December 31, 1995)
10.4 10% Subordinated Notes dated January 26, 1996 in the principal
amount of $7,500 issued to Robert M. Gintel (incorporated by
reference to Exhibit 10.25 of Form 10-Q for the quarter ended
December 31, 1995)
10.5 Equipment Lease Agreement dated as of May 16, 1988, between
Registrant and NEMLC Leasing Associates No. 3 (incorporated by
reference to Exhibit 10(k) of Form S-1 Registration Statement
No. 33-22488) amended as of December 1, 1988, and May 19, 1989
(incorporated by reference to Exhibit 10.11 of Annual Report on
Form 10-K for the year ended September 30, 1990)
10.6 Note Agreement dated as of December 20, 1988, between Registrant
and an institutional lender, as amended. (Incorporated by
reference to Exhibit 10.10 of Annual Report on Form 10-K for the
year ended September 30, 1988 and Exhibit 10.26 to Annual Report
on Form 10-K for the year ended September 30, 1995)
10.7 License Agreement dated October 24, 1988, between Registrant and
Health-tex, Inc. (incorporated by reference to Exhibit 10(k) of
Form S-1 Registration Statement No. 33-30810)
10.8 Letter of Credit Agreement dated as of October 1, 1989, between
the Registrant and Trust Company Bank (incorporated by reference
to Exhibit 10.12 of Annual Report on Form 10-K for the year
ended September 30, 1989)
10.9 Lease Agreement dated as of October 1, 1989, between the
Registrant and the Industrial Development Board of the City of
Fayette, Alabama (incorporated by reference to Exhibit 10.13 of
the Annual Report on Form 10-K for the year ended September 30,
1989)
10.10 Guaranty Agreement dated as of October 1, 1989, between the
Registrant and Trust Company Bank (incorporated by reference to
Exhibit 10.14 of Annual Report on Form 10-K for the year ended
September 30, 1989)
10.11 Form of Indemnification Agreement between Registrant and its
officers and directors (incorporated by reference to Exhibit 28
to Current Report on Form 8-K dated July 30, 1991)
10.12 License Agreement dated as of August 31, 1993, between
Registrant and Kessler Marketing Group, Inc. (incorporated by
reference to Exhibit 10.19 of Annual Report on Form 10-K for the
year ended September 30, 1993)
10.13 Modification to Management Services Contract dated February 5,
1993 (incorporated by reference to Exhibit 28 to Current Report
on Form 8-K dated January 1, 1993)
10.14 Registration Rights Letter Agreement between the Registrant and
Gintel & Co. Limited Partnership (incorporated by reference to
Exhibit 10 to Current Report on Form 8-K dated October 6, 1993)
10.15 Letter Agreement dated October 5, 1993, between Gintel & Co.
Limited Partnership and Instrument Systems Corporation
(incorporated by reference to Exhibit 2 to Current Report on
Form 8-K dated October 6, 1993)
11
<PAGE> 12
10.16 Note Purchase Agreement dated as of December 28, 1995 among
Registrant, Robert M. Gintel and Avondale Mills, Inc.
(incorporated by reference to Exhibit 10.24 of Annual Report on
Form 10-K for the year ended September 30, 1995)
10.17 Agreement dated August 15, 1996 (related to note conversion)
between Registrant and Avondale Mills, Inc.*
11 Computation of Earnings Per Share*
22 The following lists the Company's significant subsidiaries, all
of which are wholly-owned by the Company. The names of certain
subsidiaries which do not, when considered in the aggregate,
constitute a significant subsidiary have been omitted.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
<S> <C> <C>
Oneita - Kinston Corp. North Carolina
Oneita - Strathleven Limited Jamaica
Oneita Freeport Limited Jamaica
Oneita Mexicana S. A. de C.V. Mexico
</TABLE>
23 Consent of Arthur Andersen LLP*
27 Financial Data Schedule*
- ---------------
* Filed herewith
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 24th day of
December, 1996.
Oneita Industries, Inc.
By: /s/ C. Michael Billingsley
-------------------------------------
C. Michael Billingsley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on December 24, 1996 by the following persons in the capacities
indicated:
<TABLE>
<CAPTION>
Signatures Title
<S> <C>
/s/ Robert M. Gintel Chairman of the Board
- ----------------------------------
Robert M. Gintel
/s/ C. Michael Billingsley President and Chief Executive Officer
- ----------------------------------
C. Michael Billingsley
/s/ E. Franklin Impson, Jr. Vice President and Controller
- ---------------------------------- (Principal Accounting Officer)
E. Franklin Impson, Jr.
/s/ Jack R. Altherr, Jr. Director
- ----------------------------------
Jack R. Altherr, Jr.
/s/ G. Stephen Felker Director
- ----------------------------------
G. Stephen Felker
/s/ Meyer A. Gross Director
- ----------------------------------
Meyer A. Gross
/s/ John G. Hudson Director
- ----------------------------------
John G. Hudson
/s/ H. Varnell Moore Director
- ----------------------------------
H. Varnell Moore
/s/ Lewis Rubin Director
- ----------------------------------
Lewis Rubin
</TABLE>
13
<PAGE> 14
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
ONEITA INDUSTRIES, INC.
(Information required by Part III, Item 8 of Form 10-K)
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants F-2
FINANCIAL STATEMENTS
Consolidated balance sheets - September 28, 1996 and September 30, 1995 F-3
Consolidated statements of operations for the three years ended September 28, 1996 F-4
Consolidated statements of cash flows for the three years ended September 28, 1996 F-5
Consolidated statements of shareholders' equity for the three years ended September 28, 1996 F-6
Notes to consolidated financial statements F-7
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts F-16
</TABLE>
Other schedules are omitted as they are not applicable or not required under the
rules of Regulation S-X.
F-1
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oneita Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Oneita
Industries, Inc. (a Delaware corporation) and subsidiaries as of September 28,
1996 and September 30, 1995, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended September 28, 1996. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Oneita
Industries, Inc. and subsidiaries as of September 28, 1996 and September 30,
1995 and the results of their operations and their cash flows for each of the
three years in the period ended September 28, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has incurred significant losses
for the fourth quarter of fiscal 1995 and for the year ended September 28, 1996.
Unaudited interim information indicates that losses are continuing for fiscal
1997. As discussed in Note 1 to the accompanying consolidated financial
statements, the Company was not in compliance with certain terms of its
long-term debt agreements at September 28, 1996. As a result of the covenant
violations contained in the Company's long-term debt agreements, the holders of
such debt may declare the entire amount of such indebtedness due and payable
immediately. These matters, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters, including plans to restructure its long-term debt are
described in Note 1. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Columbia, South Carolina,
November 19, 1996.
F-2
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
------------ ------------
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 9,135 $ 2,749
Refundable income taxes........................................ 1,988 2,485
Accounts receivable, less allowance for doubtful accounts
of $1,117 in 1996 and $971 in 1995........................ 25,675 29,438
Inventories (Note 1)........................................... 43,883 79,968
Prepaid expenses and other current assets...................... 223 4,765
-------- --------
Total current assets...................................... 80,904 119,405
Property, plant and equipment, at cost, net of depreciation
and amortization (Note 1).................................. 46,244 43,760
Deferred charges and other assets................................ 2,377 1,852
-------- --------
$129,525 $165,017
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable.................................................. $ -- $ 23,000
Long-term debt in technical default classified as current
(Note 3)................................................. 69,115 --
Current portion of long-term debt and capital
lease obligations (Note 3).............................. 4,922 4,729
Accounts payable............................................... 9,016 11,699
Accrued liabilities (Note 2)................................... 11,433 7,073
-------- --------
Total current liabilities................................ 94,486 46,501
Long-term debt and capital lease obligations (Note 3)............ 3,125 37,404
Deferred income taxes (Note 1)................................... -- 3,272
Commitments (Note 7)
Shareholders' Equity (Note 4):
Preferred Stock, $1.00 par value, 2,000,000 shares
authorized, none issued................................ -- --
Common Stock, $.25 par value, 15,000,000 authorized
shares, outstanding 9,269,739 shares in 1996 and
6,998,906 in 1995....................................... 2,318 1,750
Capital in excess of par value............................... 76,728 69,529
Retained (deficit) earnings.................................. (45,793) 7,900
Treasury stock, at cost, 120,400 shares...................... (1,339) (1,339)
-------- --------
31,914 77,840
-------- --------
$129,525 $165,017
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
F-3
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
Years Ended
Sept. 28, 1996 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- --------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales (Note 6).......................................... $ 168,346 $ 175,036 $ 193,459
Cost of goods sold.......................................... 192,094 146,820 166,051
--------- --------- ---------
Gross profit................................................ (23,748) 28,216 27,408
Selling, general and administrative expenses................ 19,654 20,838 19,603
Consolidation and restructuring charges (Note 5)............ 6,229 -- 4,080
Write-off of goodwill (Note 1).............................. -- -- 6,651
--------- --------- ---------
(Loss) income from operations........................... (49,631) 7,378 (2,926)
Other expense:
Interest expense, net of interest income of
$424 in 1996, $465 in 1995 and $363 in 1994.......... 7,001 3,006 3,868
--------- --------- ---------
(Loss) income before income taxes.......................... (56,632) 4,372 (6,794)
--------- --------- ---------
(Benefit) provision for income taxes (Note 1):
State and local......................................... (270) 194 8
Federal................................................. (2,669) 1,358 19
--------- --------- ---------
(2,939) 1 ,552 27
--------- --------- ---------
Net (loss) income........................................... $ (53,693) $ 2,820 $ (6,821)
========= ========= =========
Net (loss) income per share (Note 1)........................ $ (7.58) $ .40 $ (.98)
========= ========= =========
Weighted average number of shares outstanding.............. 7,084 6,984 6,979
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
Years Ended
Sept. 28, 1996 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income ....................................... $(53,693) $ 2,820 $ (6,821)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization ......................... 5,886 4,649 4,792
Write-off of goodwill ................................. -- -- 6,651
Consolidation charges ................................. 2,494 808 3,136
Provision for losses on accounts receivable ........... 400 150 (30)
Decrease in deferred income taxes ..................... (1,621) (130) (153)
Loss (gain) on sale of property and equipment ......... 874 94 (137)
Change in assets and liabilities:
Decrease (increase) in receivables .................... 3,860 3,684 (5,009)
Decrease (increase) in inventories .................... 36,085 (35,248) 18,366
Decrease (increase) in prepaid expenses and
other assets ....................................... 647 1,560 (3,855)
Increase (decrease) in accounts payable
and accrued liabilities ............................ (593) (2,181) 7,768
-------- -------- --------
Total adjustments ....................................... 48,032 (26,614) 31,529
-------- -------- --------
Net cash (used in) provided by operating activities ..... (5,661) (23,794) 24,708
-------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sale of property, plant and equipment ..... 819 86 213
Acquisition of property, plant and equipment ............ (9,184) (17,998) (5,184)
Decrease (increase) in equipment lease deposits ......... 883 (475) 464
-------- -------- --------
Net cash used in investing activities ................. (7,482) (18,387) (4,507)
-------- -------- --------
Cash Flows From Financing Activities:
Short-term borrowings ................................... 2,000 30,000 10,000
Payment of short-term borrowings ........................ -- (7,000) (10,000)
Proceeds from issuance of long-term debt ................ 22,219 25,000 282
Purchase of treasury stock .............................. -- (1,339) --
Sale of Common Stock .................................... -- 337 21
Decrease in funds restricted for capital projects ....... -- 2,342 3,682
Payment of long-term debt and capital lease obligations.. (4,690) (5,377) (29,935)
-------- -------- --------
Net cash provided by (used in) financing activities.... 19,529 43,963 (25,950)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ...... 6,386 1,782 (5,749)
Cash and cash equivalents at beginning of year ............ 2,749 967 6,716
-------- -------- --------
Cash and cash equivalents at end of year .................. $ 9,135 $ 2,749 $ 967
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
<PAGE> 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ONEITA INDUSTRIES, INC.
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
Capital in Retained
Number Par Excess of (Deficit) Treasury
of Shares Value Par Value Earnings Stock
-------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Balances as of September 30, 1993 .......... 6,956,567 $ 1,739 $ 69,182 $ 11,901 $ --
Net loss ............................... -- -- -- (6,821) --
Exercise of stock options .............. 4,254 1 20 -- --
--------- ------- -------- --------- ---------
Balances as of September 30, 1994 .......... 6,960,821 1,740 69,202 5,080 --
Net income ........................... -- -- -- 2,820 --
Exercise of stock options ............ 38,085 10 327 -- --
Purchase of treasury stock ........... -- -- -- -- (1,339)
--------- ------- -------- --------- ---------
Balances as of September 30, 1995 .......... 6,998,906 1,750 69,529 7,900 (1,339)
Net loss ............................. -- -- -- (53,693) --
Common Stock issued .................. 2,270,833 568 7,199 -- --
--------- ------- -------- --------- ---------
Balances as of September 28, 1996 .......... 9,269,739 $ 2,318 $ 76,728 $ (45,793) $ (1,339)
========= ======= ======== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ONEITA INDUSTRIES, INC.
(In thousands, except share and per share amounts)
(1) Summary of significant accounting policies:
NATURE OF BUSINESS AND LIQUIDITY -
Oneita Industries, Inc. (the Company) manufacturers and markets high
quality activewear including T-shirts and fleecewear, and infantswear primarily
for the newborn and toddler markets. These products are marketed to the
imprinted sportswear industry and to major retailers.
The accompanying consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going concern and
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company incurred a net loss of
$53,693 for the year ended September 28, 1996. Market pressures that resulted in
reduced sales volumes and prices and operating losses during the year ended
September 28, 1996 are continuing in fiscal 1997. Management's operating plans
include continued close monitoring of costs and concentrating the manufacturing
and sales efforts on a more profitable product mix. During fiscal 1996, the
Company reduced its administrative and supervisory staff by approximately 150
persons which is expected to yield an estimated annual savings of approximately
$10,000. In 1997, cost of goods sold is expected to be reduced due to the
discontinued use of contractors, who in 1995 and 1996 produced most of the
Company's specialty products. Inventories at September 30, 1995 of $80,000 were
reduced by 45% in 1996 to $44,000. The Company believes that upon the completion
of its product realignment inventories can be maintained at lower levels than in
prior years.
Additionally, the Company was not in compliance with certain terms of its
long-term revolving credit agreement and loan agreement with an institutional
lender at September 28, 1996. Accordingly, these obligations, $57,000 and
$4,615, respectively, are subject to acceleration by the lenders and have been
classified as current liabilities. Also, classified as current liabilities under
a cross default provision with the revolving credit agreement are subordinated
notes held by Robert M. Gintel, Chairman of the Board, in the amount of $7,500.
The Company has entered into negotiations with its existing lenders and
another lender to restructure its debt agreements by modifying the financial
covenant requirements and extending the collateral to include the Company's
property, plant and equipment. Management expects that these efforts will result
in the restructuring of the Company's existing debt agreements or the
introduction of other third party lenders with interests and resources that may
be compatible with the Company's efforts to restructure its outstanding debt
obligations. However, no assurance can be given that the Company will be
successful in completing its negotiations to restructure its existing debt
agreements on terms satisfactory to the Company or entering into new credit
agreements with other third party lenders to replace the existing debt holders.
In the event that sufficient financing cannot be arranged in a timely
manner, the Company may be required to further reduce inventory levels in
advance of planned deliveries by either further curtailment of production or by
accelerating customer deliveries through the additional discounting of prices
below its inventory and production costs.
BASIS OF PRESENTATION -
The consolidated financial statements of the Company include the accounts
of the Company and all of its subsidiaries. All material intercompany accounts
and transactions have been eliminated. The Company's fiscal year ends on the
last Saturday in September. The 1996 and 1995 fiscal years each reflect a
52-week period. The 1994 fiscal year reflects a 12-month period.
CASH FLOWS -
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. Cash payments for
interest expense were $7,022, $3,565, (net of approximately $500 capitalized
interest for property additions) and $4,234, in fiscal 1996, 1995, and 1994,
respectively. Cash
F-7
<PAGE> 21
payments for income taxes were $5,277 and $231 in fiscal 1995 and 1994,
respectively. In fiscal 1996, income tax refunds of $2,620 were received by the
Company.
In January 1996, the Company utilized its $60,000 revolving credit
arrangement to repay $50,000 of its then existing debt. In August 1996, $7,767
of subordinated debt plus accrued interest, less deferred financing costs, was
converted into Common Stock of the Company. See Note 3.
INVENTORIES -
Inventories are stated at the lower of cost or market and include material,
labor and manufacturing overhead costs. The Company uses the last-in, first-out
method for valuing its inventories. No significant change would result if the
Company valued its entire inventory using the first-in, first-out method.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
Sept. 28, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Finished goods ................... $ 31,774 $ 58,537
Work in process .................. 9,287 17,495
Raw materials and supplies ....... 2,822 3,936
-------- --------
$ 43,883 $ 79,968
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT -
Property, plant and equipment are recorded at cost. Additions and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation of property, plant and equipment is provided primarily on
a straight-line basis over the estimated useful lives of the assets and over the
term of the lease for assets in use under capital leases. Leasehold improvements
are amortized over the life of the lease or life of the improvement, whichever
is shorter. Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated Sept. 28, Sept. 30,
Useful Life 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Factory machinery and equipment ................. 8-9 $46,058 $44,940
Buildings and building improvements ............. 20-35 19,511 18,364
Other fixtures and equipment..................... 5 7,139 6,788
Land............................................. -- 708 708
------- -------
73,416 70,800
Less accumulated depreciation.................... 27,172 27,040
------- -------
$46,244 $43,760
======= =======
</TABLE>
The above amounts include property and equipment recorded under capital
leases of $15,101 at September 28, 1996 and September 30, 1995.
Second quarter results for 1996 include a non-cash pretax charge of $2,000
(included in the restructuring charge discussed in Note 5) related to asset
write-downs and write-offs. Certain assets were evaluated and the net book value
of these assets was adjusted to the estimated fair market value.
Maintenance and repairs related to the Company's property, plant and
equipment amounted to $2,659, $2,615, and $2,473 for the years ended September
28, 1996 and September 30, 1995, and 1994, respectively.
DEFERRED CHARGES AND OTHER ASSETS -
Deferred charges and other assets include goodwill at September 28, 1996
and September 30, 1995 which represent costs in excess of net assets acquired of
$403 and $419 respectively, which is net of accumulated amortization of $121 and
$105, respectively. The goodwill is being amortized on a straight-line basis
over 40 years. The net carrying amount of goodwill approximates its estimated
fair value.
F-8
<PAGE> 22
During 1994, the Company changed its accounting method for evaluating the
impairment of intangible assets from a recoverability through future operations
method to a fair value method. As a result of this change, the Company wrote-off
$6,651 of goodwill during the fiscal year ended September 30, 1994. The Company
has capitalized certain costs related to the issuance of debt. Loan costs are
amortized on a straight-line basis over the term of the related loans.
INCOME TAXES -
Income tax expense is based on reported income adjusted for differences
that do not enter into the computation of taxes payable under applicable tax
laws. Deferred income taxes are provided for timing differences between book and
taxable income. The primary components of deferred taxes result from the
differences in the reporting of depreciation, inventory valuation and accruals
not currently deductible.
At September 28, 1996, net operating loss carry forwards of approximately
$48,000 are available to reduce future income taxes payable by the Company. The
carry forwards expire in fifteen years.
The following table summarizes the (benefit) provision for federal and
state taxes on income:
<TABLE>
<CAPTION>
Years Ended
Sept. 28, Sept. 30, Sept. 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................. $ (1,988) $ 1,490 $ 1,129
State................................... (270) 194 8
-------- -------- --------
(2,258) 1,684 1,137
Deferred:
Federal................................ (681) (132) (1,110)
State.................................. -- -- --
-------- -------- --------
(681) (132) (1,110)
-------- -------- --------
Net tax (benefit) provision................ $ (2,939) $ 1,552 $ 27
======== ======== ========
</TABLE>
The effective income tax rate differs from the United States federal
statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended
Sept. 28, Sept. 30, Sept. 30,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
United States federal statutory rate (benefit) .... (35.0)% 35.0% (35.0)%
State and local income taxes ...................... (0.3) 2.9 (0.1)
Goodwill amortization .......................... 0.1 0.1 35.2
Losses carried forward for future years ........... 29.9 -- --
Other .......................................... 0.1 (2.5) 0.3
----- ---- -----
(5.2)% 35.5% 0.4%
===== ==== =====
</TABLE>
Due to the loss carry forward position, the Company has eliminated its
deferred tax debits and credits. Deferred income taxes will be reinstated when
the carry forwards are recognized for tax purposes.
F-9
<PAGE> 23
Significant components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended
Sept. 28, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Current deferred tax debits applicable to:
Benefit plan accruals ....................... $ 1,276 $ 1,128
Other ...................................... 4,280 523
------- -------
5,556 1,651
------- -------
Valuation allowance ......................... (5,556) --
------- -------
$ 0 $ 1,651
======= =======
Noncurrent deferred tax debits (credits) applicable to:
Depreciation and amortization differences ..... $(3,827) $(3,271)
Asset revaluations ......................... 490 959
Losses carried forward for future years 16,974 --
Other.......................................... (523) (960)
------- -------
13,114 (3,272)
Valuation allowance ......................... (13,114) --
------- -------
$ 0 $ (3,272)
======= ========
</TABLE>
BENEFIT PLAN -
The Company sponsors a defined contribution retirement plan available to
all employees who meet plan requirements. The amount of the Company's
contributions are determined by formulas outlined in the plan document. The
Company's contributions to the plan for the years ended September 28, 1996, and
September 30, 1995 and 1994 were $736, $760 and $582 respectively.
The Company does not provide any additional post-retirement benefits to its
employees.
REVENUE RECOGNITION -
The Company recognizes revenue upon shipment of products to customers.
USE OF ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -
Certain balances in the prior year financial statements have been
reclassified to conform with the 1996 presentation.
EARNINGS PER SHARE -
Net income per share is calculated using the weighted average number of
shares of Common Stock outstanding during each period, adjusted to reflect the
dilutive effect of shares usable for stock options.
RELATED PARTY TRANSACTIONS -
At September 28, 1996, Avondale Mills, Inc. owned 24.8% of the Company's
outstanding Common Stock. Two members of the Company's board of directors are
executives of Avondale Mills, Inc.. For the year ending September 28, 1996, the
Company purchased 90% of its yarn requirements (approximately $43,000) from
Avondale Mills, Inc.
F-10
<PAGE> 24
(2) Accrued Liabilities:
Accrued liabilities include the following amounts at :
<TABLE>
<CAPTION>
Sept. 28, 1996 Sept. 30, 1995
--------------- --------------
<S> <C> <C>
Interest....................................... $ 1,419 $ 1,016
Payroll........................................ 1,641 1,318
Employee benefits.............................. 3,398 2,891
Restructuring and reorganization .............. 2,494 808
Other ...................................... 2,481 1,040
------- ------
$11,433 $7,073
======= ======
</TABLE>
(3) Long-term debt and capital lease obligations:
<TABLE>
<CAPTION>
Sept. 28, 1996 Sept. 30, 1995
--------------- --------------
<S> <C> <C>
Long-term debt -
Notes payable to banks ..................... $ 57,000 $25,000
Senior promissory notes .................... 7,692 10,769
Subordinated Debt ....................... 7,500 --
Land and building mortgages ..................... -- 193
Capital leases -
Industrial development bonds .............. 4,383 5,530
Other ................................... 587 641
-------- -------
77,162 42,133
Less current portion ....................... 4,922 4,729
Less long-term debt in technical default.... 69,115 --
-------- -------
$ 3,125 $37,404
========= ========
</TABLE>
In January 1996, the Company entered into a new $60,000, three-year loan
agreement with three of its banks. The proceeds of the loan were used to pay off
a then existing bank credit facility and existing short-term bank lines totaling
$50,000. The remaining $7,000 was used for working capital and capital
expenditures. The loan is secured by substantially all of the Company's accounts
receivable and inventory. At September 28, 1996, $57,000 was outstanding under
this agreement. The facility matures in January 1999. Interest is charged under
variable rate options which approximate the banks' prime rate. The loan
agreement contains certain financial covenant and ratio requirements such as
minimum working capital and net worth and debt to equity and debt coverage as
defined. At September 28, 1996, the Company was not in compliance with certain
terms of the loan agreement (see Note 1) and accordingly interest of 11% has
been paid during the default period.
In January 1996, the Company issued to Robert M. Gintel, Chairman of the
Board, subordinated notes in the aggregate amount of $7,500. The notes are
subordinated to the Company's bank debt and certain other senior debt, mature in
February 1999 and bear interest at 10%. Concurrent with the issuance of the
notes, Oneita issued to Gintel warrants to purchase 125,000 shares of Oneita
Common Stock at $7.00 per share. The Company is in default under these notes and
will remain so until the non-compliance under the loan agreement discussed above
is remedied. During this period of default, no interest may be paid to the
note holders.
In addition to the bank refinancing and subordinated note, in order to
improve liquidity and strengthen the balance sheet, in January 1996 the Company
issued to Avondale Mills, Inc., the Company's largest raw material supplier, a
note in the amount of $7,500. In August 1996, the note along with accrued
interest thereon was converted to Common Stock of the Company at $3.50 per
share.
In December 1988, the Company entered into a $20,000 loan agreement with an
institutional lender which provides for interest at a fixed rate of 11.34%. The
principal is due in semi-annual payments of $1,539. The loan agreement contains
certain financial ratio and covenant requirements such as minimum working
capital, debt to equity and debt coverage, as defined, and stock redemption and
dividend limitations. At September 28, 1996, the Company was not in compliance
with certain terms of the loan agreement (see Note 1).
The following are the scheduled maturities of long-term debt outstanding at
September 28, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 .............................. $ 3,077
1998 .............................. 3,077
1999 .............................. 66,038
</TABLE>
F-11
<PAGE> 25
In October 1989, the Company entered into a $10,000 capital lease
obligation with the Industrial Development Board of the City of Fayette, Alabama
through whom industrial development revenue bonds were issued. The bonds bear
interest and fees at a fixed rate of 8.2% per year. The principal is due in
quarterly payments of $313.
Future minimum payments under capital lease obligations consist of the
following at September 28, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 ..................................... $ 2,372
1998 ..................................... 1,629
1999 ..................................... 1,436
2000 ..................................... 91
2001 ..................................... 91
Later years ..................................... 289
-------
Total minimum lease payments .......................... 5,908
Less amount representing interest ..................... 938
-------
Present value of net minimum lease payments
( including current portion of $1,845 ) ....... $ 4,970
=======
</TABLE>
Prior to January 1996, the Company had uncommitted bank lines of credit
totaling $30,000 which provided for interest at below the prime rate. During
fiscal 1996, 1995 and 1994, the maximum amount of short-term borrowings
outstanding was $25,000, $30,000, and $10,000, the average amount outstanding
was $7,956, $17,436, and $2,334, respectively, and the weighted average interest
rate was 7.7%, 6.9%, and 5.2%, respectively. Average amounts outstanding were
determined by using daily balances and the weighted average interest rate during
the period was computed by dividing the actual interest expense by the average
short-term borrowings outstanding.
4) Stock options:
The Company has an Incentive Stock Option Plan (the "Option Plan"), which
was approved by the shareholders in 1988, under which 514,652 shares of Common
Stock have been reserved for grants to directors, officers and key employees.
The prices for the shares covered by each option will not be less than 100% of
the fair market value at the date of the grant. Options expire five years from
the date of the grant and become exercisable in installments as determined by
the Board of Directors commencing one year after the date of the grant. No
charges or credits to income are made with regard to options granted under the
Option Plan.
Transactions under the Option Plan are as follows -
<TABLE>
<CAPTION>
Number Option
of Shares Price
--------- -----------------
<S> <C> <C>
Outstanding at September 30, 1994 ................ 128,359 $6.26 to $9.15
Granted.................................... 54,985 $12.375
Exercised.................................. (19,463) $6.26 to $9.15
Terminated................................. (6,000) $6.625 to $12.375
-------
Outstanding at September 30, 1995................. 157,881 $6.625 to $12.375
Granted.................................... --
Exercised.................................. --
Terminated................................. (86,943) $6.625 to $12.375
-------
Outstanding at September 28, 1996................. 70,938 $6.625 to $12.375
=======
</TABLE>
The outstanding options expire at various dates through 2000. At September
28, 1996 options for 58,994 shares are exercisable at $6.625 to $12.375 per
share and there are 227,833 options available for grant.
In 1990, the Company's shareholders approved a Non-Qualified Stock Option
Plan under which 453,876 shares of Common Stock have been reserved for grants.
Options expire five years after the date of the grant and become exercisable in
installments as determined by the Board of Directors.
F-12
<PAGE> 26
Transactions under the Non-Qualified Stock Option Plan are as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price
---------- -----
<S> <C> <C> <C>
Outstanding at September 30, 1994 ............... 174,193 $6.26 to $15.36
Granted ............................. 108,215 $11.50 to $12.375
Exercised ............................. (18,622) $6.26 to $9.15
Terminated ............................ (12,300) $6.625 to $15.36
-------
Outstanding at September 30, 1995 251,486 $6.625 to $15.36
Granted .............................. --
Exercised ............................ --
Terminated ........................... (135,424) $6.625 to $15.36
--------
Outstanding at September 28, 1996 ............... 116,062 $6.625 to $15.36
========
</TABLE>
The outstanding options expire at various dates through 2000. At September
28, 1996, options for 94,681 shares are exercisable at $6.625 to $15.36 per
share and there are 280,774 options available for grant.
In February 1994, the Board of Directors approved the Outside Directors
Stock Option Plan for Oneita Industries, Inc. (the "Directors Plan") under which
60,000 shares of Common Stock have been reserved for grants to outside
directors. The Directors Plan provides for automatic annual grants of 2,000
options to each outside director. The exercise price for the shares covered by
each option will not be less than 100% of the fair market value at the date of
grant. Options expire five years from the date of the grant and become
exercisable after the first anniversary of the grant. At September 28, 1996
there were options to purchase 28,500 shares outstanding with exercise prices of
$6.125 to $12.375 per share.
During 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (Statement No. 123). Under the
provisions of Statement No. 123, companies are encouraged, but not required, to
measure compensation costs related to its employee stock option plans under the
fair value method. Statement No. 123 is effective for the Company in fiscal
1997. The Company will implement the requirements of Statement No. 123 and will
adopt the disclosure provision of Statement No. 123 in fiscal 1997.
(5) Consolidation and Restructuring charges:
The operating results for the year ended September 28, 1996 reflect a
pretax charge of $6,229 to streamline and consolidate the Company's
manufacturing and administrative operations. The charge reflects the costs of
equipment relocation, staff reductions and retraining and transitional employee
salaries and benefits.
The operating results for the year ended September 30, 1994 reflect a
pretax charge of $4,080 for the write-down of facilities to their fair market
value that the Company intends to sell or abandon after usable machinery and
equipment is redeployed and the transitional costs related to the reorganization
of certain administrative functions.
(6) Major Customers and Concentration of Credit Risk:
Major customers are those that individually account for more than 10% of
the Company's consolidated net sales. Sales to one customer were 16.3%, 17.1%
and 16.2% of consolidated net sales in fiscal years 1996, 1995 and 1994,
respectively. Sales to another customer amounted to 10.5% of consolidated net
sales in fiscal 1994. The Company has incurred advertising expenses of $3,800,
$2,400 and $2,500 for the years ended September 28, 1996 and September 30, 1995
and 1994, respectively.
Substantially all of the Company's sales are to apparel distributors and
retailers. This could unfavorably affect the Company's overall exposure to
credit risk inasmuch as these customers could be affected by similar economic or
other conditions. The Company performs periodic credit evaluations of its
customers' financial condition and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of
F-13
<PAGE> 27
specific customers, historical trends and other information. Historically, the
Company's uncollectible accounts receivable have not been significant, and
typically the Company does not require collateral for its accounts receivable.
At September 28, 1996 and September 30, 1995 and 1994, approximately 41.6%,
46.6% and 59.4%, respectively, of net accounts receivables were represented by
six customers.
In addition, in assessing its concentration of credit risk related to cash
and cash equivalents, the Company places its cash and cash equivalents, which
may at times exceed FDIC insurance limits, in domestic financial institutions.
(7) Commitments:
The Company and its subsidiaries rent real property and equipment under
operating leases expiring at various dates. Most of the real property leases
have escalation clauses relating to increases in real property taxes.
Future minimum payments under noncancelable operating leases consist of the
following at September 28, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 ................................... $ 4,289
1998 ................................... 3,329
1999 ................................... 2,989
2000 ................................... 978
2001 ................................... 119
Later years ............................ --
---------
$ 11,704
</TABLE>
Rent expense for all operating leases was $6,131, $6,475 and $6,549 for the
years ended September 28, 1996, September 30, 1995 and 1994, respectively.
F-14
<PAGE> 28
(8) Quarterly financial information (unaudited):
<TABLE>
<CAPTION>
Quarter Ended
Sept. 28, June 29, March 30, Dec. 30,
1996 1996 1996 1995
--------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ........................ $ 34,711 $55,212 $43,236 $35,187
Gross profit .................... (12,264) 1,444 (13,482) 554
Net (loss) income ................. (19,728) (5,243) (25,348) (3,374)
Net (loss) income per share $ (2.56) $ (.76) $ (3.68) $ (.49)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
Sept. 30, June 30, March 31, Dec. 31,
1995 1995 1995 1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ....................... $37,430 $45,548 $51,952 $40,106
Gross profit .................... 1,474 8,891 9,987 7,864
Net (loss) income ................. (2,783) 2,116 2,109 1,378
Net (loss) income per share ...... $(.40) $.30 $.30 $.20
</TABLE>
Net (loss) income per share amounts are computed independently for each
of the quarters presented, on the basis described in Note 1.
Accordingly, the sum of the quarters do not equal the full year net
(loss) income per share amount.
Net losses for the second and fourth quarters of fiscal 1996 included
pre-tax losses of $5,301 and $928, respectively, for restructuring
charges as described in Note 5.
F-15
<PAGE> 29
SCHEDULE II
ONEITA INDUSTRIES, INC. AND SUBSIDIARIES - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended September 28, 1996 and September 30, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged Balance at
Beginning (Credited) to Costs Deductions End of
Description of Period and Expenses (Recoveries) Period
--------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended September 28, 1996:
Allowance for doubtful accounts .... $ 971 $400 $254 $1,117
For the Year Ended September 30, 1995:
Allowance for doubtful accounts .... 1,006 150 185 971
For the Year Ended September 30, 1994:
Allowance for doubtful accounts .... 1,024 (30) (12) 1,006
</TABLE>
F-16
<PAGE> 30
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ONEITA INDUSTRIES, INC.
Form 10 - K
E X H I B I T I N D E X
Exhibit
Number Exhibit Description
(a) Financial Statements:
See Index to Consolidated Financial Statements and Schedules at page
F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Registrant in the last quarter of
the year covered by this report.
(c) Exhibits:
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3(a) of Form S-1 Registration Statement No. 33-16972)
3.2 By-laws as amended (incorporated by reference to Exhibit 3.1 of
Form 10-Q for the quarter ended March 31, 1994)
10.1 Stock Option Plan (incorporated by reference to Exhibit 10(a) of
Form S-1 Registration Statement No. 33-16972)
10.2 1989 Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 10.2 of Annual Report on Form 10-K for the year ended
September 30, 1990)
10.3 $60,000 Revolving Credit Agreement dated January 26, 1996 among
the Company, SunTrust Bank, Atlanta, First Union National Bank
of South Carolina and NatWest Bank N.A. (incorporated by
reference to Exhibit 10.28 of Form 10-Q for the quarter ended
December 31, 1995)
10.4 10% Subordinated Notes dated January 26, 1996 in the principal
amount of $7,500 issued to Robert M. Gintel (incorporated by
reference to Exhibit 10.25 of Form 10-Q for the quarter ended
December 31, 1995)
10.5 Equipment Lease Agreement dated as of May 16, 1988, between
Registrant and NEMLC Leasing Associates No. 3 (incorporated by
reference to Exhibit 10(k) of Form S-1 Registration Statement
No. 33-22488) amended as of December 1, 1988, and May 19, 1989
(incorporated by reference to Exhibit 10.11 of Annual Report on
Form 10-K for the year ended September 30, 1990)
<PAGE> 31
10.6 Note Agreement dated as of December 20, 1988, between
Registrant and an institutional lender, as amended.
(Incorporated by reference to Exhibit 10.10 of Annual Report on
Form 10-K for the year ended September 30, 1988 and Exhibit 10.26
to Annual Report on Form 10-K for the year ended September 30, 1995)
10.7 License Agreement dated October 24, 1988, between Registrant and
Health-tex, Inc. (incorporated by reference to Exhibit 10(k) of
Form S-1 Registration Statement No. 33-30810)
10.8 Letter of Credit Agreement dated as of October 1, 1989, between
the Registrant and Trust Company Bank (incorporated by reference
to Exhibit 10.12 of Annual Report on Form 10-K for the year
ended September 30, 1989)
10.9 Lease Agreement dated as of October 1, 1989, between the
Registrant and the Industrial Development Board of the City of
Fayette, Alabama (incorporated by reference to Exhibit 10.13 of
the Annual Report on Form 10-K for the year ended September 30, 1989)
10.10 Guaranty Agreement dated as of October 1, 1989, between the
Registrant and Trust Company Bank (incorporated by reference to
Exhibit 10.14 of Annual Report on Form 10-K for the year ended
September 30, 1989)
10.11 Form of Indemnification Agreement between Registrant and its
officers and directors (incorporated by reference to Exhibit 28
to Current Report on Form 8-K dated July 30, 1991)
10.12 License Agreement dated as of August 31, 1993, between
Registrant and Kessler Marketing Group, Inc. (incorporated by
reference to Exhibit 10.19 of Annual Report on Form 10-K for the
year ended September 30, 1993)
10.13 Modification to Management Services Contract dated February 5,
1993 (incorporated by reference to Exhibit 28 to Current Report
on Form 8-K dated January 1, 1993)
10.14 Registration Rights Letter Agreement between the Registrant and
Gintel & Co. Limited Partnership (incorporated by reference to
Exhibit 10 to Current Report on Form 8-K dated October 6, 1993)
10.15 Letter Agreement dated October 5, 1993, between Gintel & Co.
Limited Partnership and Instrument Systems Corporation
(incorporated by reference to Exhibit 2 to Current Report on
Form 8-K dated October 6, 1993)
10.16 Note Purchase Agreement dated as of December 28, 1995 among
Registrant, Robert M. Gintel and Avondale Mills, Inc.
(incorporated by reference to Exhibit 10.24 of Annual Report on
Form 10-K for the year ended September 30, 1995)
10.17 Agreement dated August 15, 1996 (related to note conversion)
between Registrant and Avondale Mills, Inc. *
11 Computation of Earnings Per Share *
22 The following lists the Company's significant subsidiaries, all
of which are wholly-owned by the Company. The names of certain
subsidiaries which do not, when considered in the aggregate,
constitute a significant subsidiary have been omitted.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
<S> <C> <C>
Oneita - Kinston Corp. North Carolina
Oneita - Strathleven Limited Jamaica
Oneita Freeport Limited Jamaica
Oneita Mexicana S. A. de C.V. Mexico
</TABLE>
23 Consent of Arthur Andersen LLP *
27 Financial Data Schedule *
* Filed herewith
<PAGE> 1
Exhibit 10.17
AGREEMENT, dated as of August 15, 1996, between ONEITA INDUSTRIES,
INC., a Delaware corporation having its principal address at 4130 Faber Place
Drive, Suite 200, Ashley Corporate Center, Charleston, South Carolina 29405 (the
"Company"), and AVONDALE MILLS, INC., an Alabama corporation having its
principal address at 506 South Broad Street, Monroe, Georgia 30655 ("Avondale").
WITNESSETH
WHEREAS, Avondale is the record and beneficial owner of that certain
Subordinated 10% Promissory Note of the Company in the aggregate principal
amount of $7,500,000 (the "Avondale Note");
WHEREAS, Avondale desires to exchange the Avondale Note for shares of
Common Stock of the company at the exchange rate of $3.50 per share, and the
Company desires to effect such exchange, in each case on the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Exchange of Avondale Note
1.1 Exchange of Avondale Note. The parties agree that at a closing (the
"Closing") to take place on such date as the parties hereto shall agree, but in
no event later than August 29, 1996 (the "Closing Date"), and subject to the
conditions hereinafter set forth in Section 1.2 below, Avondale shall be deemed
to have delivered the Avondale Note to the Company for cancellation, and in
exchange therefor the Company shall issue to Avondale shares of its Common Stock
equal in number to the result obtained by dividing (I) the sum of (a) the
principal amount of the Avondale Note and (b) accrued interest on the Avondale
Note through and including the day prior to the Closing Date by (ii) $3.50. The
shares to be issued are hereinafter referred to as the "Shares" and the exchange
of Shares for the Avondale Note hereinafter if referred to as the "Exchange".
The Company acknowledges that Avondale has previously delivered to the Company
the Avondale Note on June 26, 1996 in connection with its request to exchange
the Avondale Note for the Replacement Note (referred to in Section 4.1 of the
Note Purchase Agreement dated December 28, 1995 between Avondale, the Company
and Robert M. Gintel, hereinafter the "Note Purchase Agreement"). The Company
further acknowledges that the Company has not delivered the Replacement Note to
Avondale. Consequently, at the Closing, Avondale shall not be required to
deliver the Avondale Note to the Company for cancellation.
1.2 Conditions to the Parties' Obligations. The respective obligations
of the parties to effect the Exchange as provided for herein shall be subject to
the fulfillment, on or before the Closing Date, of each of the following
conditions:
1.2.1 Fairness Opinion. The Board of Directors of the Company, acting
upon the recommendation of a specially appointed Independent Committee and the
Audit Committee of the Board of Directors, shall have received the opinion of
its financial advisor to the effect that the Exchange is fair from a financial
point of view to the Company and the holders of Common Stock of the Company and
such opinion shall not have been withdrawn as of the Closing Date.
1.2.2 Approvals and Consents. There shall have been obtained by
Avondale and the Company all consents, approvals, authorizations, waivers,
permits and orders necessary or required for purposes of legally consummating
the transactions contemplated by this Agreement, including, without limitation,
any consent and/or waiver required form the New York Stock Exchange needed to
permit the Company to effect the Exchange without shareholder approval.
<PAGE> 2
Exhibit 10.17
1.2.3 Legal Actions or Proceedings. No action or proceeding by any
governmental authority or other person shall have been instituted or threatened
which could reasonably be expected to enjoin, restrain or prohibit, or could
reasonably be expected to result in substantial damages in respect of, any
provision of this Agreement or the consummation of the transactions
contemplated hereby.
1.3 Closing. The Closing of the Exchange on the Closing Date shall take
place at the office of the Company at 11:00 a.m. on the Closing Date or at such
other time and place as the Company and Avondale mutually agree upon. At the
Closing, the parties shall consummate the Exchange.
Section 2. Avondale Right to Board Representation
As soon as practicable after the Closing, the Company will take all
necessary actions to cause a second representative of Avondale to be appointed
to the Company's Board of Directors. Thereafter, and until the third
anniversary of the Closing Date, the Company will nominate and recommend to the
Company's shareholders the election to the Company's Board of Directors of, and
use its best efforts to cause the election to the Company's Board of Directors
of, a number of designees of Avondale that is equal to the result obtained by
multiplying (I) Avondale's percentage ownership of the issued and outstanding
share of Common Stock of the Company on the date of such determination by (ii)
the aggregate number of directors then serving on the Company's Board of
Directors. If the determination of the number of designees to which Avondale is
so entitled results in a fraction, such fraction shall be rounded up to the
next number if such fraction is one-half (1/2) or more.
Section 3. Certain Agreements.
Avondale agrees that during the period from the Closing Date through the
third anniversary of the Closing Date, neither it nor any of its affiliates (as
defined in Rule 12b-2 promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") will, unless specifically invited in
writing by the Company, directly or indirectly, in any manner, acquire, offer
or propose to acquire, solicit an offer to sell or agree to acquire, directly
or indirectly, alone or in concert with others, by purchase or otherwise, any
direct or indirect beneficial interest in any voting securities or direct or
indirect rights, warrants or options to acquire, or securities convertible into
or exchangeable for, any voting securities of the Company having, in the
aggregate, in excess of 15% of the voting power of the Company's then
outstanding voting securities.
Section. 4. Shares to be Restricted Securities. It is understood and
acknowledged that the Shares shall be "restricted securities" (as defined in
Rule 144 under the Securities Act of 1933, as amended), but that the Shares
shall be subject to the Registration Rights Agreement executed by the Company
and Avondale and referred to in Section 1.2.4 of the Note Purchase Agreement,
and such Shares shall be deemed "Registrable Shares" (as defined in the
Registration Rights Agreement) for all purposes under the Registration Rights
Agreement. In connection with the issuance of the Shares, Avondale hereby
repeats (and at the Closing Avondale shall be deemed to repeat again) its
representations set forth in Section 7.3 of the Note Purchase Agreement.
Section 5. Representations and Warranties. The Company represents and
warrants to Avondale as follows: (1) the Shares issueable upon the Exchange have
been duly authorized and validly reserved, and, upon issuance in accordance with
the terms hereof, shall be duly and validly issued, fully paid and
nonassessable, and fully authorized for listing on the New York Stock Exchange,
subject to official notice of issuance; (ii) the Company has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder, and the execution and delivery of the Agreement by the
Company and the performance by the Company of its obligations hereunder have
been duly and validly authorized by all necessary corporate action on the part
of the Company; (iii) the Board of Directors of the Company has approved the
execution, delivery, and performance of this Agreement and the consummation of
the Exchange; (iv) this Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding
<PAGE> 3
Exhibit 10.17
Agreement of the Company enforceable against it in accordance with its terms;
(v) no consent, approval, authorization, order or declaration of or from, or
registration, qualification or filing with, any court or governmental agency or
body is required in connection with the execution, delivery and performance of
this Agreement and the consummation of the Exchange by the Company, other than
the consent of the New York Stock Exchange; and (vi) the execution, delivery and
performance of this Agreement by the Company and the consummation of the
Exchange do not and will not, with the passing of time or the giving of notice
or both, violate or conflict with or constitute a breach of or a default under
any term or provision or the charter or by-laws of the Company, any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company is a party or any of its properties is subject, or any judgment, decree
or order of any court or governmental authority or agency to which the Company
is a party or to which any of its properties is subject.
Section 6. Confidentiality. The Parties agree that (I) immediately
following execution of this Agreement, the Company shall issue the press release
attached as Annex A and incorporate the same into a letter to the Company's
shareholders, and (ii) except for the press release and letter referred to in
clause (i), neither party will issue any press release or make any public
disclosure concerning the transactions contemplated by this Agreement except as
may be required by law or stock exchange rule or regulation. Notwithstanding the
foregoing, the parties hereto acknowledge and agree that this Section 6 shall
not prohibit Avondale from filing a Schedule 13D under the Securities Exchange
Act of 1934 or disclosing the contents of this Agreement and/or filing this
Agreement as exhibit to the Registration Statement on Form S-4 originally filed
by Avondale and Avondale Mills, Inc., on June 7, 1996 (Registration No. 333-5455
and 333-5455-01).
Section 7. Governing Law. This agreement shall be governed by New York
law.
Section 8. Counterparts. This Agreement may be executed in
counterparts, each of which will constitute an original and all of which, taken
together, shall constitute one and the same instrument.
Section 9. Termination of Standby Agreement. The parties hereto hereby
agree that effective as of the date of this Agreement, the Standby Agreement
referred to in the Note Purchase Agreement is hereby terminated and shall be of
no further force of effect.
IN WITNESS WHEREOF, the Company and Avondale have executed this
Agreement as of the day and year first above written.
ONEITA INDUSTRIES, INC.
By: /s/ Robert M Gintel
---------------------------------
Name: Robert M. Gintel
Title: Chairman
AVONDALE MILLS, INC.
By: /s/ G. Stephen Felker
---------------------------------
Name: G. Stephen Felker
Title: Chairman, President & CEO
I hereby agree to the provisions
of Section 9 above:
By: /s/ Robert M. Gintel
-----------------------------
Robert M. Gintel, individually
<PAGE> 1
EXHIBIT 11
ONEITA INDUSTRIES, INC.
Statement Regarding Computation of Per Share Earnings
For the Years Ended September 28, 1996, September 30, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
Sept. 28, 1996 Sept. 30, 1995 Sept. 30 1994
------------------------------------------------
Net (loss) income per share:
<S> <C> <C> <C>
Net (loss) income ......................... $(53,693) $2,820 $(6,821)
========= ====== ========
Shares:
Weighted average shares ..................... 7,084 6,922 6,961
Add shares related to dilutive effect of
outstanding stock options ................. -- 62 18
--------- ------ -------
Weighted average number of shares
outstanding .......................... 7,084 6,984 6,979
========= ====== ========
Net (loss) income per share $ (7.58) $ .40 $ (.98)
========= ====== ========
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
dated November 19, 1996, included in Oneita Industries, Inc.'s Form 10K for the
year ended September 28, 1996, and to the incorporation by reference of our
report into the Company's previously filed Registration Statements on Form S-8
(Registration No. 33-30576, 33-34778, 33-62970 and 33-75834) and Registration
Statements on Form S-3 (Registration Nos. 33-88600 and. 33-70524), and to all
references to our Firm included in these Registration Statements.
/s/ Arthur Andersen LLP
Columbia, South Carolina,
December 23, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended September 28, 1996 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 9,135,000
<SECURITIES> 0
<RECEIVABLES> 26,792,000
<ALLOWANCES> 1,117,000
<INVENTORY> 43,883,000
<CURRENT-ASSETS> 80,904,000
<PP&E> 73,416,000
<DEPRECIATION> 27,172,000
<TOTAL-ASSETS> 129,525,000
<CURRENT-LIABILITIES> 94,486,000
<BONDS> 3,125,000
0
0
<COMMON> 2,318,000
<OTHER-SE> 29,596,000
<TOTAL-LIABILITY-AND-EQUITY> 129,525,000
<SALES> 168,346,000
<TOTAL-REVENUES> 168,346,000
<CGS> 192,094,000
<TOTAL-COSTS> 192,094,000
<OTHER-EXPENSES> 25,883,000
<LOSS-PROVISION> 400,000
<INTEREST-EXPENSE> 7,001,000
<INCOME-PRETAX> (56,632,000)
<INCOME-TAX> (2,939,000)
<INCOME-CONTINUING> (53,693,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,693,000)
<EPS-PRIMARY> (7.58)
<EPS-DILUTED> (7.58)
</TABLE>
